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12
How
blockchain
technologies
impact
your
business
model
Vida
J.
Morkunas
a,
*,
Jeannette
Paschen
b
,
Edward
Boon
c
a
Luleå
University
of
Technology,
Universitetsområdet,
Porsön,
971
87
Luleå,
Sweden
b
KTH
Royal
Institute
of
Technology,
Lindstedtsvägen
30,
114
28
Stockholm,
Sweden
c
School
of
Business
&
Technology,
Webster
University
Geneva,
15
Route
de
Collex,
1293
Bellevue,
Geneva,
Switzerland
1.
Blockchain
beyond
bitcoin
Emerging
technologies
regularly
serve
as
enabling
forces
for
economic,
social,
and
business
transformation
(Cohen
&
Amorós,
2014;
Paschen,
Kietzmann,
&
Kietzmann,
in
press).
According
to
the
Gartner
Hype
Cycle
for
Emerging
Technologies,
a
tool
to
illustrate
the
maturity
and
adoption
of
specific
technologies,
blockchain
placed
among
the
top
five
technology
trends
in
2018
(Kietzmann,
2019;
Panetta,
2018).
Much
of
the
attention
on
blockchain
today
has
focused
on
its
ability
to
change
the
financial
services
industry
fundamentally.
But
the
impact
of
blockchain
technology
goes
beyond
Business
Horizons
(2018)
xxx,
xxx—xxx
Available
online
at
www.sciencedirect.com
ScienceDirect
www.elsevier.com/locate/bushor
KEYWORDS
Blockchain;
Private
blockchain;
Public
blockchain;
Business
model;
Blockchain
technology;
Innovation
strategy
Abstract
Much
of
the
attention
surrounding
blockchain
today
is
focused
on
finan-
cial
services,
with
very
little
discussion
about
nonfinancial
services
firms
and
how
blockchain
technology
may
affect
organizations,
their
business
models,
and
how
they
create
and
deliver
value.
In
addition,
some
confusion
remains
between
the
block-
chain
(with
definite
article)
and
blockchain
(no
article),
distributed
ledger
technolo-
gies,
and
their
applications.
Our
article
offers
a
primer
on
blockchain
technology
aimed
at
general
managers
and
executives.
The
key
contributions
of
this
article
lie
in
providing
an
explanation
of
blockchain,
including
how
a
blockchain
transaction
works
and
a
clarification
of
terms,
and
outlining
different
types
of
blockchain
technologies.
We
also
discuss
how
different
types
of
blockchain
impact
business
models.
Building
on
the
well-established
business
model
framework
by
Osterwalder
and
Pigneur,
we
outline
the
effect
that
blockchain
technologies
can
have
on
each
element
of
the
business
model,
along
with
illustrations
from
firms
developing
blockchain
technology.
#
2019
Kelley
School
of
Business,
Indiana
University.
Published
by
Elsevier
Inc.
All
rights
reserved.
*
Corresponding
author
E-mail
addresses:
vida.morkunas@ltu.se
(V.J.
Morkunas),
jeannette.paschen@indek.kth.se
(J.
Paschen),
boon@webster.ch
(E.
Boon)
https://doi.org/10.1016/j.bushor.2019.01.009
0007-6813/#
2019
Kelley
School
of
Business,
Indiana
University.
Published
by
Elsevier
Inc.
All
rights
reserved.
the
financial
sector
(Hughes,
Park,
Archer-Brown,
&
Kietzmann,
2019)
and
encompasses
any
business
that
acts
as
or
relies
on
an
intermediary
between
two
parties–— for
example,
a
buyer
and
a
seller–— and
extracts
economic
rents
from
a
brokerage
position
in
the
value
chain.
Therefore,
blockchain
is
pre-
dicted
to
challenge
existing
business
models
and
offer
opportunities
for
new
value
creation.
Unfortunately
for
businesses,
there
is
little
guid-
ance
on
the
different
blockchain
technologies
and
solutions
in
existence
today
and
how
these
might
affect
businesses
and
business
models.
While
the
blockchain
technology
underpinning
Bitcoin
is
the
most
discussed
variant,
it
is
far
from
the
only
one.
While
it
is
easy
to
find
sources
that
support
block-
chain’s
potential
to
disrupt
all
business
activity
as
profoundly
as
the
internet,
email,
social
media,
or
mobile
did
(Swan,
2015;
Tapscott
&
Tapscott,
2016),
it
is
much
harder
to
find
material
that
explains
how
blockchain
technologies
vary
and
how
the
different
types
can
offer
value
to
businesses.
Furthermore,
there
exists
confusion
over
related
terms,
such
as
the
blockchain
(with
definite
article)
and
block-
chain
(no
article),
both
distributed
ledger
technol-
ogies,
and
applications
of
these
by
which
economic
actors
exchange
digital
representations
of
assets.
Our
article
addresses
these
gaps.
2.
Foundations
of
blockchain
technology
The
beginnings
of
blockchain
go
back
to
a
white
paper
written
by
Satoshi
Nakamoto
(2008).
Nakamo-
to
introduced
a
peer-to-peer
version
of
electronic
cash,
bitcoin,
that
allows
online
payments
to
be
sent
directly
between
parties
without
going
through
centralized
financial
intermediaries.
As
part
of
the
implementation
of
bitcoin,
Nakamoto
also
devised
the
ledger,
which
Nakamoto
named
“a
chain
of
blocks”
(Nakamoto,
2008,
p.
7).
This
chain
of
blocks
supports
the
new
version
of
electronic
cash
(The
Economist,
2015)
and
was
later
termed
block-
chain.
Many
other
blockchain
technologies
have
been
developed
since
Nakamoto
first
introduced
the
blockchain.
Blockchain
provides
a
decentralized
digital
da-
tabase
of
transactions,
also
known
as
a
distributed
ledger,
which
is
maintained
and
updated
by
a
net-
work
of
computers
that
verify
a
transaction
before
it
is
approved
and
added
to
the
ledger.
It
allows
transacting
parties
to
exchange
ownership
of
digi-
tally
represented
assets
in
a
real-time
and
immuta-
ble
peer-to-peer
system
without
the
use
of
intermediaries.
Figure
1
illustrates
the
six
steps
of
asset
exchange
between
two
economic
actors
using
blockchain
technology.
When
a
transaction
between
two
parties
is
about
to
take
place
(Step
1),
it
is
first
converted
into
a
hashed
transaction
proposal
and
stored
as
a
candi-
date
to
be
printed
on
the
ledger.
This
proposed
transaction
includes
basic
information
such
as
date/time,
sender,
receiver,
asset
type,
and
quan-
tity.
The
proposed
transaction
is
provided
with
a
unique
cryptographic
signature
that
ensures
the
integrity
and
authenticity
of
the
record
(Step
2)
and
then
broadcast
to
a
network
of
distributed
computers
for
processing
and
authentication
(Step
3).
These
computers
process
and
authenticate
the
transaction
(Step
4)
and,
once
authenticated,
the
transaction
is
added
to
the
digital
ledger
(Step
5),
which
completes
the
asset
transfer
between
the
two
parties
(Step
6).
Each
new
transaction
is
linked
to
those
recorded
previously,
providing
a
complete,
irreversible
and
verifiable
history
of
all
transactions
ever
made
on
this
blockchain.
Before
proceeding
further,
it
is
important
to
clarify
noteworthy
blockchain-related
terminology.
Consistent
with
the
approach
suggested
by
Swan
(2015)
and
Evans-Greenwood,
Harper,
Hillard,
and
Williams
(2016),
we
herein
use
the
terms
as
follows:
Blockchain,
without
the
use
of
an
article.
Block-
chain
technology,
or
a
blockchain
(indefinite
BUSHOR-1558;
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12
Figure
1.
The
six
steps
of
asset
exchange
using
blockchain
Source:
Adapted
from
Coinmama
(2018).
2
V.J.
Morkunas
et
al.
article),
refers
to
the
underlying
technology:
A
network
of
computers
and
algorithms
that
pro-
cess
Bitcoin
and
many
other
distributed
ledger
applications.
The
blockchain,
using
a
definite
article,
refers
to
the
technology
underpinning
bitcoin
specifically.
At
its
core,
a
blockchain
is
a
decentralized
store
of
information
(Swan,
2015)
comparable
to
an
infor-
mation
systems
database
that
is
updated
in
real
time
and
distributed
to
its
user
base
for
validated
record
keeping.
As
outlined
above,
validators
re-
view
and
authenticate
each
proposed
transaction
before
it
is
added
to
the
ledger.
With
regard
to
the
type
of
access
for
the
users
of
a
blockchain,
there
exist
two
types
of
blockchains:
public
and
private.
Private
can
take
on
one
of
two
subforms.
Public
or
open
blockchain
technologies
allow
anyone
to
interact
with
another
transacting
party.
The
identity
between
the
two
parties
is
either
pseudonymous
or
even
entirely
anonymous
(i.e.,
the
transacting
parties
do
not
know
each
other
prior
to
the
transaction;
Vaughn,
2015).
An
open
block-
chain
implies
little
to
no
privacy
for
transactions,
implying
that
all
participants
can
view
all
trans-
actions.
An
open
blockchain
also
requires
a
substan-
tial
amount
of
computational
power
that
is
necessary
to
maintain
a
distributed
ledger
on
a
large
scale
(Jayachandran,
2017).
More
specifically,
to
achieve
consensus
in
most
public
blockchains,
each
node
in
a
network
must
solve
a
complex,
resource-intensive
cryptographic
problem
called
a
proof
of
work
to
ensure
all
nodes
of
the
blockchain
are
in
sync.
Examples
of
open
blockchain
include
Bitcoin,
Litecoin
(a
cryptocurrency
designed
to
be
faster
than
Bitcoin),
and
Ethereum,
which
is
proc-
essed
in
a
different
manner
than
Bitcoin
and
Lite-
coin
and
is
used
primarily
for
smart
contracts.
A
smart
contract
consists
of
self-executing
code
on
a
blockchain
that
automatically
implements
the
terms
of
an
agreement
between
parties.
Private
or
closed
blockchain
technologies
allow
only
prevalidated
individuals
or
groups
of
individu-
als
to
access
the
ledger
and
enter
and
view
data.
Here,
others
know
the
identities
of
all
users
prior
to
transacting.
A
variant
of
the
private
blockchain
is
the
federated
or
consortium
model,
in
which
the
blockchain
operates
under
the
leadership
of
a
group.
This
type
of
blockchain
is
a
private
network
that
maintains
a
shared
record
of
transactions
ac-
cessible
only
to
those
who
have
been
prevalidated.
Who
grants
new
entrants
permission
to
use
the
blockchain
varies:
Existing
participants
can
decide
on
future
entrants,
a
regulatory
authority
can
grant
new
users
licenses
to
participate,
or
a
consortium
can
make
participation
decisions.
In
contrast
to
a
public
blockchain,
a
private
blockchain
offers
more
transaction
privacy,
which
is
critical
for
transac-
tions
involving
sensitive
data
(e.g.,
the
transmission
of
medical
or
financial
data).
The
right
to
read
the
private
blockchain
may
be
open
in
some
cases
or
this
right
is
restricted
to
the
participants
only.
Closed
blockchains
are
easier
to
scale
up,
cut
down
costs,
and
feature
greater
transactional
through-
put.
Additional
advantages
include
added
security,
lower
costs,
added
reliability,
and
a
higher
level
of
trust,
as
only
preverified
parties
are
able
to
initiate
a
new
node
in
the
blockchain
(Coburn,
2018).
Some
members
of
the
blockchain
developer
community
do
not
consider
private
blockchains
to
be
block-
chains;
heated
discussions
continue
in
web
commu-
nities
as
well
as
during
conferences
(Kessels,
2018).
Examples
of
closed
blockchains
include
Linux-based
Hyperledger,
which
supports
the
collaborative
development
of
blockchains
and
tools
in
banking,
finance,
Internet
of
Things,
supply
chain,
manufacturing,
and
technology,
and
R3,
a
distrib-
uted
ledger
technology
company
that
leads
a
con-
sortium
of
more
than
200
firms
and
develops
applications
for
finance
and
commerce
on
its
block-
chain
platform
(Vaughn,
2015).
Despite
the
differences
described
above,
open
and
closed
blockchains
offer
some
common
fea-
tures:
Both
are
decentralized
peer-to-peer
networks,
in
which
each
participant
maintains
a
replica
of
a
shared
append-only
ledger
of
digitally
signed
transactions;
Both
maintain
the
replicas
in
sync
through
a
protocol
referred
to
as
consensus;
and
Both
provide
certain
guarantees
on
the
immuta-
bility
of
the
ledger,
even
when
some
participants
may
be
faulty
or
malicious
(Coburn,
2018).
3.
How
can
blockchain
impact
your
business
model?
Blockchain
technologies
offer
many
possibilities
to
grow
entirely
new
businesses
and
pose
direct
threats
of
disruption
to
traditional
incumbents.
Organizations
using
conventional
business
models
built
on
the
predication
of
acting
as
an
intermediary
between
two
transaction
parties
must
ask
them-
selves
if
and
how
blockchain
technologies
may
im-
pact
their
value
propositions,
how
they
compete,
and
how
they
operate.
Pilot
projects
are
currently
BUSHOR-1558;
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How
blockchain
technologies
impact
your
business
model
3
underway
in
several
industries
including
the
use
of
blockchain
to
track
the
transport
of
goods
inside
of
an
industrial
supply
chain;
use
of
smart
contracts
to
enable
secure,
faster,
and
less
expensive
real
estate
transactions;
and
use
of
blockchain
to
enable
con-
sumers
to
send
funds
abroad
without
incurring
de-
lays
or
high
exchange
fees.
Firms
need
to
consider
how
their
business
model
may
be
affected
by
rap-
idly
growing
blockchain
applications.
To
allow
for
a
structured
discussion
of
the
potential
impacts
that
blockchain
can
have
on
business
models,
we
use
the
business
model
framework
illustrated
by
Osterwalder
and
Pigneur
(2013,
p.
14),
who
said
a
business
model
“describes
the
rationale
of
how
an
organization
creates,
delivers,
and
captures
value”
and
consists
of
nine
building
blocks.
These
nine
blocks
cover
the
four
main
areas
of
a
business:
its
customers,
the
offer,
the
infrastructure,
and
finan-
cial
viability.
The
nine
elements
are
(1)
customer
segments,
(2)
value
proposition,
(3)
channels,
(4)
customer
relationships,
(5)
revenue
streams,
(6)
key
resources,
(7)
key
activities,
(8)
key
partner-
ships,
and
(9)
cost
structure.
When
taken
together
and
properly
aligned,
these
elements
create
and
deliver
value.
Osterwalder
and
Pigneur
(2013)
sum-
marized
the
nine
essential
parts
of
a
business
model
in
a
visual
template
termed
the
Business
Model
Canvas.
The
canvas
is
usually
drawn
on
a
large
piece
of
paper
with
sections
for
each
of
the
model’s
elements
and
thus
serves
as
a
tool
to
define,
change,
or
evaluate
a
firm’s
business
model.
In
the
following
subsections,
we
provide
a
blue-
print
of
how
each
of
the
nine
essential
elements
could
be
affected
by
blockchain
technologies
and
illustrate
our
propositions
with
examples
that
we
collected
from
blockchain
development
startups
in
Europe,
North
America,
and
South
Africa.
We
gath-
ered
public
information
from
the
startup
firms’
websites,
as
well
as
news
articles,
press
releases,
and
other
sources.
3.1.
Customer
segments
Osterwalder
and
Pigneur
(2013,
p.
20)
defined
cus-
tomer
segments
as
“the
different
groups
of
people
or
organizations
that
an
enterprise
aims
to
reach
and
serve.”
An
organization
using
blockchain
can
address
existing
customer
segments
in
a
market.
Individuals
wanting
to
buy
or
sell
real
estate
in
Sweden
can
use
a
blockchain
technology
pilot
proj-
ect
powered
by
ChromaWay
to
purchase
or
sell
homes.
Customer
markets
served
by
blockchain
systems
can
be
similar
to
the
segments
served
by
typical
organizations:
niche
markets,
diversified
markets,
and
mass
markets.
However,
blockchain
is
distinctive
in
that
it
can
facilitate
access
to
a
target
market
that
was
previously
not
reachable
(Larios-Hernandez,
2017)
and
therefore
creates
new
customer
segments
for
a
business.
These
are
the
customer
segments
targeted
by
Everest
in
Africa,
Asia,
and
South
America.
Everest,
a
firm
that
uses
a
private
and
permissioned
Ethereum-based
protocol,
provides
a
decentralized
distributed
ledger
technology
that
incorporates
a
payment
solution,
a
multicurrency
wallet,
and
a
biometric
identity
system
to
facilitate
microfinance
transac-
tions,
land
claims,
and
medical
records
to
customer
segments
in
developing
countries.
The
potential
market
is
the
group
of
2
billion
people
who
have
limited
or
no
access
to
financial
services.
3.2.
Value
proposition
The
value
proposition
building
block
includes
all
of
the
firm’s
activities
that
create
value
for
customers
(Osterwalder
&
Pigneur,
2013).
As
Harvard
Business
School
Professor
Theodore
Levitt
(1974,
p.
8)
fa-
mously
said:
“People
don’t
want
to
buy
a
quarter-
inch
drill,
they
want
a
quarter-inch
hole.”
In
other
words,
customers
do
not
purchase
products;
they
buy
a
solution
to
get
an
important
job
done.
The
value
derived
by
the
customer
will
increase
in
direct
proportion
to
the
importance
that
the
customer
places
on
the
job
to
be
done
and
by
the
level
of
satisfaction
with
the
current
options
to
complete
this
job,
the
availability
of
other
options,
and
their
cost
(Johnson,
Christensen,
&
Kagermann,
2008).
Blockchain
technology
can
influence
customer
value
by
providing
access
to
products
or
services
that
were
previously
not
available
or
could
only
be
garnered
by
expensing
a
large
amount
of
time
or
money.
Swedish
company
Safello
uses
an
open
blockchain
protocol
to
provide
a
transparent
means
to
exchange
bitcoin
against
fiat
currencies.
By
doing
so,
it
provides
resources
(e.g.,
foreign
currency)
that
would
have
been
otherwise
not
available
or
only
available
at
additional
expense.
Centbee,
in
South
Africa,
enables
the
users
of
its
mobile
app
to
send
bitcoin
to
users’
contact
lists.
Centbee
users
can
move
money
simply
and
cheaply
across
borders
to
support
family
and
friends
without
incurring
exorbitant
currency
exchange
fees.
Safello
and
Centbee
disintermediate
by
re-
ducing
the
requirement
for
a
centralized
bank,
or
even
eliminating
a
currency
exchange
service
for
transactions.
Moreover,
blockchain
technology
can
also
pro-
vide
faster
or
less
expensive
transactions
than
those
completed
in
traditional
settings.
As
an
illustration,
the
customer
value
proposition
of
certified
notaries
for
homebuyers
is
based
on
facilitating
the
owner-
ship
transfer
of
the
asset
from
seller
to
buyer
by
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4
V.J.
Morkunas
et
al.
authenticating
the
documentation
of
the
respective
contracts.
Working
with
a
notary
for
home
pur-
chases
or
sales
requires
time
and
is
often
expensive.
Here,
blockchain
technologies
can
reduce
the
trans-
action
cost
and
time
for
the
respective
parties.
This
may
be
achieved
by
using
smart
contracts.
As
an
example,
ChromaWay’s
private
blockchain
protocol
will
enable
Swedish
citizens
to
use
smart
contracts
to
purchase
or
sell
a
house
and
reduce
time
and
costs
during
the
transaction.
3.3.
Channels
The
channels
building
block
“describes
how
a
company
communicates
with
and
reaches
its
customer
segments
to
deliver
a
value
proposition”
(Osterwalder
&
Pigneur,
2013,
p.
26).
These
channels
may
be
the
company’s
own
sales
force,
website,
or
stores,
or
the
channels
may
be
the
stores
of
its
partners
or
wholesalers.
One
impact
of
using
block-
chain
is
the
simplification
of
doing
business.
Middle
parties
may
become
disintermediated.
In
the
previ-
ous
section,
we
mentioned
an
example
of
real
estate
transactions
that
are
facilitated
by
smart
contracts.
Thisisaccomplishedby
removing
therequirement
for
time
and
personnel
required
to
complete
a
validity
check
or
a
transaction.
New
types
of
channels
may
also
be
introduced
within
an
organization
(e.g.,
by
sharing
common
code
to
strengthen
a
supply
chain;
Montecchi,
Plangger,
&
Etter,
2019).
3.4.
Customer
relationships
The
customer
relationship
building
block
“describes
the
types
of
relationships
that
a
company
establishes
with
specific
customer
segments”
(Osterwalder
&
Pigneur,
2013,
p.
27).
These
relationships
may
be
drivenby a motivation
toacquirecustomers,toretain
customers,
or
to
boost
sales.
Examples
of
categories
of
relationships
include
personal
assistance,
dedicat-
ed
personal
assistance,
self-service,
automated
services,
the
creation
of
communities,
or
the
co-
creation
of
new
content.
For
Lantmäteriet,
the
Swedish
government’s
land
registry
authority,
the
pilot
workflow
powered
by
ChromaWay
streamlined
the
process
of
transacting
real
estate.
The
digital
ledger
records
each
step
of
a
real
estate
transaction
as
well
as
the
property
title.
The
application
can
also
be
accessed
by
bank
representatives
as
well
as
by
real
estate
agents
and
contains
secure
information
that
is
up-to-date
and
easy
to
access.
Lantmäteriet
remains
involved
in
the
purchase
throughout
the
process–— rather
than
intermittently–— and
fulfills
its
aims
of
creating
greater
confidence
and
transparency
in
its
dealings
with
Swedish
citizens
(Cheng,
Daub,
Domeyer,
&
Lundqvist,
2017).
3.5.
Revenue
streams
The
fifth
building
block
element
of
a
business
model
is
the
revenue
streams.
The
revenue
streams
block
represents
(Osterwalder
&
Pigneur,
2013,
p.
30):
The
cash
that
a
company
generates
from
each
customer
segment.
There
are
two
kinds
of
revenue
streams:
Transaction
revenues
result-
ing
from
one-time
payments
and
recurring
rev-
enues
resulting
from
ongoing
payments
to
either
deliver
a
value
proposition
to
customers
or
provide
post-purchase
customer
support.
ABI
Research
(2018)
estimated
that
$10.6
billion
in
revenue
will
be
generated
by
blockchain
projects
by
2023,
mainly
from
software
sales
and
services
(Mearian,
2018).
Technology
companies
that
pro-
vide
blockchain-related
professional
services
derive
revenues
from
transaction
fees
for
activity
on
a
network,
service
level
agreements
for
enterprise
clients
or
platform
fees
for
software-as-a-service
(SaaS)
contracts.
The
greatest
revenues
from
block-
chain,
however,
have
been
derived
from
crypto-
crowdfunding,
using
initial
coin
offerings
(ICOs).
An
ICO
is
a
form
of
fundraising
that
uses
the
power
of
cryptocurrencies
and
blockchain-based
trading
and
provides
an
alternative
to
classic
debt/capital
funding
as
provided
by
venture
capital
and
private
equity
firms
and
banks.
An
ICO
allocates
tokens
instead
of
shares
to
the
early
investors
in
a
business.
These
tokens
can
be
traded
on
an
aftermarket
and
all
transactions
are
verified
on
a
blockchain.
In
2017,
800
ICOs
raised
over
$5
billion
(CB
Insights,
2018),
whereas
in
the
first
5
months
of
2018,
a
total
of
537
ICOs
closed
successfully
with
a
volume
of
$13.7
billion
(PwC,
2018a).
3.6.
Key
resources
and
activities
Osterwalder
and
Pigneur
(2013,
p.
34)
defined
key
resources
as
“the
most
important
assets
required
to
make
a
business
model
work.”
These
are
the
re-
sources
that
create
the
value
proposition,
reach
markets,
maintain
relationships
with
customer
seg-
ments,
and
earn
revenues.
These
resources
may
be
physical,
financial,
intellectual,
or
human.
Key
ac-
tivities
encompass
all
activities
required
to
deliver
value
(i.e.,
how
a
firm
transforms
the
resources
in
value-creating
ways).
While
resources
and
activities
are
considered
as
two
separate
elements
in
the
Osterwalder
and
Pigneur
(2013)
framework,
we
discuss
them
jointly
in
this
section
because
these
two
elements
are
tightly
linked.
Blockchain
technologies
require
firms
to
recon-
sider
the
key
resources
that
make
up
their
business
model.
In
the
following
paragraphs,
we
discuss
two
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How
blockchain
technologies
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business
model
5
aspects
of
how
blockchain
technologies
influence
resources
and
activities.
The
first
aspect
concerns
the
opportunity
to
make
resources
more
fluid,
al-
lowing
firms
to
move
away
from
the
traditional
ownership
and
to
access
resources
only
when
re-
quired.
This
opportunity
is
especially
pertinent
to
the
application
of
public
blockchain
technologies
in
which,
as
described
earlier,
anyone
can
transact
with
another
party
in
a
peer-to-peer
network.
In
some
cases,
firms
can
refrain
from
investments
in
IT
infrastructure
build
and
maintenance
because,
in
the
case
of
public
blockchains,
the
network
pro-
vides
these
resources
and
processes.
Furthermore,
both
applications
of
public
and
private/federated
blockchains
enable
firms
to
automate
processes
that
were
previously
manual,
enabling
human
resources
to
focus
on
other,
more
value-added
ac-
tivities.
Examples
of
these
processes
include
docu-
mentation,
verification,
and
audit
reporting.
The
second
important
aspect
of
how
resources
and
activities
can
be
affected
by
blockchain
technologies
is
when
the
users
provide
many
of
the
key
resources
and
processes
and
use
block-
chain
technologies
to
facilitate
resource
ex-
change.
Using
the
example
of
smart
contracts
in
real
estate
transactions,
resources
such
as
human
capital
(e.g.,
knowledge,
skills,
experience)
and
physical
capital
(assets)
are
provided
by
the
trans-
acting
parties
while
blockchain
technologies
facilitate
the
peer-to-peer
exchange
of
these
re-
sources.
3.7.
Key
partnerships
The
building
block
key
partnerships
describes
“the
network
of
suppliers
and
partners
that
make
the
business
model
work”
(Osterwalder
&
Pigneur,
2013,
p.
38).
These
partnerships
may
take
forms
such
as
strategic
alliances,
joint
ventures,
or
buyer-
supplier
relationships
to
ensure
reliable
supplies.
On
the
one
hand,
the
use
of
blockchain
may
entail
the
disintermediation
of
traditional
intermediaries
(e.g.,
banks,
notaries,
currency
exchanges)
or
transform
financial
institutions
(e.g.,
credit
card
companies).
The
use
of
blockchain
can
also
enable
the
addition
of
new
partners
such
as
technology
companies
that
develop
application
programming
interfaces
(APIs)
and
software
development
kids
(SDKs),
and
maintain
the
transactional
algorithms.
Centbee
developed
a
merchant
payment
ecosystem
in
South
Africa
to
enable
retailers
to
quickly
and
easily
accept
bitcoin
at
point
of
sale
without
re-
quiring
the
installation
of
additional
terminal
hard-
ware.
Blockchain
also
facilitates
peer-to-peer
partnerships
between
businesses,
therefore
strengthening
and
extending
supply
chains.
Figure
2
summarizes
the
impact
of
blockchain
technology
on
a
firm’s
business
model.
3.8.
Cost
structure
The
final
building
block
is
the
firm’s
cost
structure.
The
cost
structure
“describes
all
costs
incurred
to
operate
a
business
model”
(Osterwalder
&
Pigneur,
2013,
p.
40).
Blockchain
implementa-
tions
can
reduce
transaction
costs
such
as
negotia-
tion
costs
and
search
costs,
and
eliminate
the
costs
of
intermediaries.
In
the
financial
services
industry,
blockchain
technologies
are
expected
to
allow
for
annual
cost
savings
of
$15—$20
billion
by
2022
(Gregorio,
2017).
These
savings
are
the
result
of
a
reduction
in
IT
infrastructure
costs
and
the
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Figure
2.
The
blockchain
and
the
business
model
canvas
6
V.J.
Morkunas
et
al.
elimination
of
manual
processes
that
did
not
add
much
value
to
the
firm.
Implementations
of
blockchain
to
manage
finan-
cial
transfers
can
shorten
the
authorization
holds
currently
implemented
in
banking
and
credit
card
processing.
Authorization
holds
can
hold
up
funds
for
several
days.
Transaction
consensus
operation
speeds
can
reduce
these
holds
to
mere
minutes
in
public
blockchain
protocols.
On
private
block-
chains,
these
holds
are
reduced
to
microseconds
(Vukoli
c,
2018).
Operations
powered
by
blockchain
require
fewer
manual
steps
in
aggregating,
amend-
ing,
and
sharing
data,
or
providing
regulatory
re-
porting
and
audit
documents.
Employees
can,
therefore,
focus
on
activities
that
add
more
value
and
generate
greater
revenues
while
consumers
save
time
and
money.
Citizens
in
Sweden
who
ne-
gotiate
a
home
purchase
by
using
a
blockchain-
powered
smart
contract
and
exclude
previously
required
third
parties
from
the
transaction
will
save
money
and
time
during
the
transaction.
While
our
previous
discussion
considered
the
business
model
elements
separately
and
relied
on
different
examples
for
illustration,
we
close
this
section
with
an
explanation
of
the
impact
of
blockchain
technologies
by
looking
at
one
case
study:
How
is
blockchain
application
influencing
Walmart’s
business
model?
Walmart
recently
launched
a
blockchain
solution
to
detect
and
re-
move
recalled
food
from
its
products
list
and
track
every
bag
of
spinach
and
head
of
lettuce
(Corkery
&
Popper,
2018).
The
system
is
powered
by
IBM’s
Hyperledger
blockchain-based
supply
chain
tracking
system
technology.
The
solution
is
implemented
in
response
to
a
vexing
business
problem:
tracing
and
immediately
removing
from
shelves
any
food
that
is
harmful
to
shoppers
and
removing
only
food
that
is
harmful
while
leaving
items
that
are
safe
to
eat
on
the
shelves
to
be
sold.
Upon
completing
a
pilot
program
with
25
stock
keeping
units
(SKUs)
and
10
partners,
Walmart
is
now
bringing
more
than
100
suppliers
into
an
im-
mutable
and
transparent
ledger
that
can
track
food
from
farm
to
store
in
seconds.
Walmart
expects
to
include
additional
products
“on
the
scale
of
50,000
to
70,000
SKUs”
(Mearian,
2018).
It
is
instructive
to
review
the
potential
of
this
major
project
through
the
lens
of
the
business
model
canvas
by
Osterwalder
and
Pigneur
(2013).
The
value
proposition
to
Walmart’s
consum-
ers
is
that
of
increased
food
safety
while
keeping
Walmart’s
promise
of
Everyday
Low
Prices.
Wal-
mart’s
dominance
in
the
food
retail
sector
enables
it
to
retain
its
profit
formula
with
its
revenue
model
protected,
and
cost
structure,
margins,
and
inven-
tory
turnover
unchanged;
in
fact,
automating
the
tracking
of
the
supply
chain
using
Hyperledger
is
expected
to
result
in
cost-savings
for
Walmart,
thus
increasing
the
potential
for
profit.
The
key
resour-
ces
and
processes
that
are
part
of
the
supply
chain
implementation
also
contribute
to
the
customer
value.
Data
about
food
grown
in
farms
and
destined
for
Walmart
will
be
logged
on
the
blockchain
at
every
step
of
processing
and
transport,
by
using
manual
entry
as
well
as
with
Internet
of
Things
devices
(Corkery
&
Popper,
2018).
Each
step
in
the
supply
chain
is
“not
only
recorded
but
trusted
because
of
the
features
of
blockchain
are
immuta-
ble
and
use
a
consensus
mechanism”
(Mearian,
2018).
The
implementation
of
the
blockchain-powered
tracking
system
enables
Walmart
to
reduce
the
length
of
time
required
to
trace
the
origin
of
fresh
food–— from
the
shelf
all
the
way
back
to
the
farm–— from
7
days
to
only
a
few
seconds
(Mearian,
2018),
enabling
it
to
act
swiftly
in
case
of
any
contaminations
at
source.
Well-trained
store
em-
ployees
will
contribute
to
the
swift
removal
of
tainted
food
from
local
shelves.
The
implemented
blockchain-based
system
is
therefore
expected
to
improve
the
value
proposition
to
Walmart’s
custom-
ers
of
a
ready
supply
of
inexpensive,
fresh,
and,
most
importantly,
safe
foods.
4.
Discussion
The
critical
mass
of
blockchain
technology
adoption
has
yet
to
be
reached.
Few
blockchain
projects
have
moved
from
a
pilot
stage
to
full
implementation.
Recent
research
by
Gartner
reveals
that
only
1%
of
responding
CIOs
reported
any
sort
of
blockchain
adoption,
and
only
8%
of
respondents
are
engaging
in
short-term
planning
and
pilot
planning
(Gartner,
2018).
A
report
by
Deloitte
(2018a)
is
more
positive:
“While
a
majority
(74%)
of
our
survey
respondents
report
that
their
organizations
see
a
compelling
business
case
for
the
use
of
blockchain
technology,
only
34%
say
their
company
has
initiated
deploy-
ment
in
some
way.”
According
to
Deloitte
(Schatsky,
Arora,
&
Dongre,
2018),
several
obstacles
continue
to
limit
the
mainstream
adoption
of
blockchain
technology:
Blockchain
operations
are
viewed
as
slow.
De-
spite
their
ability
to
offer
a
significant
increase
in
efficiency,
when
compared
to
standard
multiday
authorization
holds
by
banks
and
credit
compa-
nies,
consensus
operations
still
generate
mi-
nutes-long
delays
on
a
public
distributed
ledger
network.
The
additional
layers
of
obfuscation
and
encryption
required
to
keep
data
confidential
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business
model
7
add
to
the
processing
time
(Marvin,
2017).
This
has
a
bearing
on
customer
value
creation,
as
consumers
and
businesses
expect
speedy,
nearly
instantaneous
operations.
News
reports
about
data
breaches
on
cryptocur-
rency
trading
platforms,
contrasted
with
corpo-
rate
requirements
for
ironclad
data
security
across
disparate
systems,
are
limiting
managers’
consideration
of
the
technology.
Blockchain
architectures
are
not
standardized.
There
were
more
than
6,500
active
blockchain
projects
listed
on
GitHub
in
2018,
with
projects
based
on
different
protocols,
consensuses,
priva-
cy
measures,
and
written
in
different
coding
languages.
Given
this
lack
of
standardization,
establishing
business
connections
between
firms
by
using
blockchain
architectures
is
difficult
because
of
the
challenges
of
integrating
different
architec-
tures.
Costs
continue
to
be
high:
blockchain
applica-
tions,
developed
to
customer
specifications,
re-
quire
expensive
specialized
developers
and
require
complex
integration
efforts.
The
constraints
brought
by
regulation
are
an
obstacle
to
consideration,
particularly
for
inno-
vative
projects
such
as
smart
contracts.
Regula-
tory
constraints,
specifically
in
financial
and
medical
applications,
prevent
the
rollout
of
smart
contracts
in
several
countries.
The
final
obstacle
is
the
lack
of
a
critical
mass
of
users,
enabling
the
mass
adoption
of
blockchain
technology.
Initiatives
such
as
Everest’s
large-
scale
humanitarian
projects
for
the
disenfran-
chised
are
built
on
the
belief
that
using
block-
chain
to
address
these
needs
will
accelerate
a
wider
use
of
the
technology.
However,
these
obstacles
to
blockchain
adoption
are
being
overcome
by
recent
developments
in
regulatory
easing,
collaborations
between
orga-
nizations,
as
well
as
new
development
in
more
efficient
blockchain
architectures
(Schatsky
et
al.,
2018):
New
consensus
mechanisms
used
in
Hyperledger,
Stellar,
R3,
and
Ripple
implementations
increase
throughput
and
performance,
reducing
processing
time
from
minutes
to
milliseconds
(Vukoli
c,
2018).
Consensus
is
the
method
by
which
participants
in
a
blockchain
network
come
to
agree
that
the
transactions
recorded
in
the
digital
ledger
are
valid.
Standardization
efforts
continue.
There
are
cur-
rently
more
than
60
blockchain
consortia
initiat-
ing
projects.
These
consortia
bring
together
hundreds
of
private
and
public
companies
and
government
organizations
eager
to
explore
the
potential
of
blockchain
applications.
Some
de-
velop
use
cases,
set
standards,
develop
infra-
structure
and
applications,
and
operate
blockchain
networks.
Others
educate,
conduct
research,
or
provide
advice
to
their
members.
This
is
a
positive
sign,
as
“the
value
of
the
network
increases
with
the
number
of
users”
(Deloitte,
2018a).
Some
examples
of
these
con-
sortia
include
the
Enterprise
Ethereum
Alliance
with
more
than
600
members
and
the
Hyperledg-
er
Foundation,
which
includes
over
250
organiza-
tions.
The
number
of
companies
that
collaborate
with
one
another
outside
of
established
consortia
is
also
increasing.
The
complexity
and
cost
of
blockchain
implemen-
tations
are
both
declining.
Amazon,
IBM,
and
Microsoft
offer
cloud-based
implementations
of
blockchain
as
well
as
templates
at
a
cost
that
is
lower
than
specialized
development
(Patrizio,
2018).
These
templates
ease
the
setup
process,
reduce
implementation
time
from
months
to
days,
and
will
enable
organizations
to
reduce
the
costs
of
these
initiatives.
Finally,
regulatory
support
is
improving.
Legisla-
tion
has
been
passed
in
several
states
in
the
U.S.
to
facilitate
the
adoption
of
blockchain
for
some
medical
applications
(Deloitte,
2018a).
The
recent
developments
noted
in
Schatsky
et
al.
(2018)
stem
from
the
growth
in
the
number
of
collaborations
and
the
increase
in
the
formation
of
consortia.
Organizations
are
carefully
evaluating
the
blockchain
movement
and
launching
pilot
proj-
ects
as
proofs
of
concept.
Meanwhile,
entrepre-
neurs
issue
and
sell
blockchain
tokens
and
reshape
entrepreneurship
and
innovation
in
fund-
raising,
investing,
community
building,
and
open
sourcing
(Chen,
2018).
A
major
decision
for
orga-
nizations
undertaking
blockchain
projects
lies
in
the
selection
of
the
blockchain
model:
private
or
pub-
lic?
The
two
types
of
blockchains
that
we
described
are
differentiated
by
unique
selling
propositions:
a
private
blockchain
can
save
an
organization
time
and
cut
costs,
whereas
a
public
blockchain
has
the
potential
to
disrupt
an
industry,
either
through
BUSHOR-1558;
No.
of
Pages
12
8
V.J.
Morkunas
et
al.
disintermediation,
as
is
the
case
in
financial
appli-
cations
of
Bitcoin
and
other
cryptocurrencies,
or
by
the
creation
of
new
business
models
(Tamayo,
2017).
Despite
the
small
number
of
implementations,
it
is
still
encouraging
to
see
an
increasing
interest
by
companies
to
explore
opportunities
with
block-
chain
technology.
In
his
widely-discussed
and
de-
bated
article
“IT
Doesn’t
Matter,”
published
over
15
years
ago
in
Harvard
Business
Review,
Carr
(2003,
p.
43)
noted
that
companies
“steal
a
march
on
their
competitors
by
having
a
superior
insight
into
the
use
of
a
new
technology.”
New
technolo-
gies
offer
more
efficient
operating
methods
and
lead
to
larger
market
changes.
However,
the
win-
dow
for
gaining
this
advantage
is
open
only
for
a
short
time.
“By
the
end
of
the
build-out
phase,”
Carr
(2003,
p.
43)
suggested
that
“opportunities
for
individual
advantage
are
largely
gone.”
There-
fore,
those
executives
who
see
a
compelling
case
to
begin
a
blockchain
pilot
should
begin
sooner,
rather
than
later.
Whether
the
new
blockchain
projects
lead
to
incremental
or
radical
innovations
is
also
worthy
of
examination.
A
useful
model
for
categorization
is
Henderson
and
Clark’s
(1990)
framework
for
defin-
ing
innovation,
based
on
the
impact
technological
change
has
on
a
firm’s
established
capabilities.
We
have
observed
in
our
small
sample
of
case
studies
that
consortia-led
blockchain
projects
have
the
potential
to
lead
to
architectural
innovations,
whereas
public
blockchain
projects
can
engender
radical
innovations.
Architectural
innovations
re-
configure
established
systems
to
link
existing
com-
ponents
in
a
novel
way.
Walmart’s
use
of
a
private
blockchain
can
be
considered
an
architectural
in-
novation,
as
it
enables
it
to
create
“new
interac-
tions
and
new
linkages
with
other
components
in
the
established
product”
(Henderson
&
Clark,
1990,
p.
12).
It
relays
information
with
greater
velocity
and
credibility
about
the
origins
and
freshness
of
Walmart’s
supply
of
spinach
and
lettuce.
Radical
innovation,
by
contrast,
is
based
on
different
prin-
ciples
and
leads
to
new
applications
and
markets
such
as
those
fueled
by
the
recent
surge
in
ICOs.
It
also
enables
the
successful
entry
of
new
firms
or
the
creation
of
a
new
industry
(Henderson
&
Clark,
1990).
Safello’s
Bitcoin
exchange
for
European
cus-
tomers
and
ChromaWay’s
use
of
smart
contracts
for
real
estate
transactions
are
also
examples
of
radical
innovations.
One
limitation
of
our
article
is
the
early-stage
nature
of
the
implementations
under
discussion
and
the
resulting
small
sample
of
active
use
cases.
Many
projects
are
early
pilots
and
have
not
yet
achieved
full
rollout.
As
more
projects
move
from
pilot
stage
to
rollout,
it
will
be
interesting
to
explore
which
industries
will
create
architectural
innovations
or
generate
radical
innovations
and
to
confirm
wheth-
er
these
will
be
supported
by
private
or
public
blockchains.
Empirical
research
can
also
explore
which
parts
of
the
business
model
canvas
are
most
affected
by
the
implementation
of
a
blockchain:
customer
seg-
ments,
value
propositions,
channels,
customer
re-
lationships,
revenue
streams,
cost
structures,
key
resources,
key
activities,
or
partnerships.
An
addi-
tional
area
for
further
investigation
will
be
to
ex-
amine
whether
a
private
or
a
public
blockchain
offers
greater
benefits
for
each
of
these
elements.
Such
an
investigation
will
require
a
larger
sample
of
companies
running
applications
on
blockchain
than
is
currently
available.
5.
Concluding
remarks
We
began
this
article
with
an
explanation
of
block-
chain
technologies
and
continued
with
a
description
of
their
impact
on
a
firm’s
business
model.
With
a
focus
on
an
audience
of
general
managers
and
exec-
utives,
rather
than
blockchain
experts,
we
highlight-
ed
how
blockchain
technologies
operate
and
explained
the
two
major
types
of
blockchain–— public
and
private–— currently
in
application
in
practice.
In
addition,
we
clarified
some
of
the
blockchain-related
terminologies,
thus
adding
to
the
conceptual
clarity
of
the
construct.
The
main
contribution
of
our
article
lies
in
pre-
senting
the
influence
blockchain
technologies
can
have
on
a
firm’s
business
model.
By
using
the
well-established
business
model
framework
from
Osterwalder
and
Pigneur
(2013),
we
explained
how
the
two
types
of
blockchain
technologies
de-
lineated
in
our
article
present
opportunities
for
value
creation
for
a
firm’s
business
model
(see
Figure
2).
We
used
illustrative
examples,
derived
from
our
investigations
of
startup
companies
that
pilot
blockchain
technology
solutions
in
the
areas
of
real
estate
transactions,
payment
systems,
curren-
cy
exchange,
supply
chain
management,
and
appli-
cations
for
the
billions
of
unbanked
citizens
in
the
developing
world.
We
also
identified
directions
for
future
research
on
the
types
of
innovation
generat-
ed
by
blockchain
innovations
and
an
opportunity
for
empirical
examination
of
impacts
to
the
elements
of
a
firm’s
business
model
once
a
larger
sample
of
blockchain
implementations
can
be
formed.
Managers
can
use
the
business
model
as
an
ana-
lytical
framework
to
assess
the
impact
of
blockchain
technology
for
their
existing
business
model;
alter-
natively,
they
may
use
the
canvas
to
reinvent
or
BUSHOR-1558;
No.
of
Pages
12
How
blockchain
technologies
impact
your
business
model
9
develop
completely
new
business
models.
This
ex-
ercise
is
useful
because
the
addition
of
blockchain
technology
can
affect
how
firms
may
run,
operate,
and
compete.
Managers
must
discern
the
potential
impacts
so
as
to
not
be
left
behind
(Angelis
&
Ribeiro
da
Silva,
2019).
Blockchain
holds
promise
in
many
organizational
applications
with
several
promising
pilot
projects
underway.
These
focus
on
applications
such
as
sup-
ply
chain,
Internet
of
Things,
digital
identity,
digital
records,
digital
currency,
payments,
and
voting
(Deloitte,
2018b).
A
survey
by
Credit
Suisse
(2016)
identified
the
leading
aims
of
blockchain
technology
pilots
as
the
reduction
of
operational
costs,
shorter
settlement
time,
reduction
of
risk,
new
revenue
opportunities,
and
a
reduction
in
the
costs
of
capital.
Most
of
the
current
pilot
projects
pertain
to
financial
services
(PwC,
2018b).
Although
many
of
these
projects
have
improved
operations,
there
have
also
been
instances
of
fraud,
particularly
in
the
cryptocurrency
blockchain
sector
in
the
area
of
ICOs.
Although
most
ICOs
are
legitimate
efforts
to
raise
funding
for
startups,
with
varying
degrees
of
success,
some
ICOs
have
been
fraudulent
from
in-
ception
and
enabled
fraudsters
to
abscond
with
tens
of
millions
of
dollars
(Arnold,
2018).
Applications
outside
of
finance
also
seek
to
im-
prove
operations.
Manufacturing
companies
seek
to
trace
goods
from
purchase
to
delivery
around
the
globe
reliably
and
quickly.
Healthcare
providers
yearn
for
immutable
and
traceable
patient
records,
to
reduce
pharmaceutical
and
insurance
fraud,
and
improve
data
exchanges
in
clinical
trials.
Public
sector
projects
include
not
only
land
claims
but
also
digital
identity
projects
that
will
facilitate
travel,
citizenship
records
and
voting
(Syeed,
2018).
Additional
pilots
seek
to
improve
operations
for
retailers
and
entertainment
and
media
orga-
nizations.
Blockchain
has
an
opportunity
to
create
benefits
beyond
digital
currencies
and
influence
all
sectors
of
the
economy.
Managers
are
well
advised
to
continuously
moni-
tor
blockchain
technologies
to
assess
their
impact
and
consider
the
strategic
importance
of
blockchain
for
their
business.
If
they
do
not
do
so,
they
will
lose
their
competitive
edge
to
those
managers
of
firms,
whether
new
or
old,
who
understand
blockchain
and
who
are
ready
to
innovate
their
business
models.
When
evaluating
a
business
case
for
blockchain
adoption,
executives
and
managers
should
ask
the
following
questions:
What
are
the
sources
of
value
that
blockchain
can
provide?
How
will
using
blockchain
align
with
the
orga-
nization’s
goals
and
strategies?
Does
the
organization
have
the
right
people,
partnerships,
and
resources
in
place?
Will
the
organization
reach
new
customers,
strengthen
relationships,
or
increase
sales?
Will
blockchain
help
service
customer
needs
bet-
ter
and
offer
more
value?
Will
blockchain
tighten
relationships
inside
the
supply
chain?
Could
smart
contracts
be
used
to
transact
faster,
accelerate
payments,
or
reduce
costs?
Will
blockchain
improve
organizational
cost
structures?
Can
it
integrate
within
the
existing
IT
ecosystem?
Will
blockchain
help
reduce
search
costs
and
negotiation
costs?
Will
blockchain
enable
the
organization
to
com-
pete
more
effectively?
Executives
who
are
considering
initiating
block-
chain
projects
will
do
well
to
consider
the
align-
ment
of
their
project
with
their
overall
business
strategy
and
reflect
on
which
element
of
their
business
model
will
become
most
improved
by
the
implementation.
To
help
with
this
important
task,
our
article
provides
a
structured
framework
by
which
to
assess
the
impact
of
blockchain
technology
on
each
business
model
element.
In
addition,
man-
agers
will
need
to
decide
whether
an
open
or
a
closed
blockchain
will
help
them
realize
their
orga-
nizational
objectives.
With
a
growing
number
of
consortia,
a
decrease
in
complexity
and
costs
of
implementation,
and
a
larger
number
of
pilots
and
experiments
underway,
blockchain
is
advancing
rapidly
toward
greater
acceptance.
Astute
execu-
tives
and
managers
should
understand
how
the
technology
fits
in
their
business
and
how
it
can
help
improve
operations
in
order
to
capture
its
advan-
tages
ahead
of
their
competitors.
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